FBI Probes Sudden '75 Shift on U.S. Fund for Pa. Hospital

By George Lardner Jr.April 7, 1978

The FBI is investigating a sudden turnabout by the Ford White House in 1975 that resulted in the release of federal funds for Philadelphia's Hahnemann Hospital.

According to a new government study of the administration $14.5 million grant, the administration at first decided to hold up the money under the Impoundment Control Act of 1974, but then hurriedly reversed itself under pressure from Rep. Daniel J. Flood (D-Pa).

The flipflop came the day before President Ford's deferral announcement was to be sent to Capitol Hill.

Both Flood, who rammed the Hahnemann appropriation through Congress, and Rep. Joshua Eilberg (D-Pa), whose law firm was hired around the same time to secure additional financing, have come under investigation in connection with allegations that they might have profited from the Philadelphia hospital's $63.5 million construction program. All bank records pertaining to Flood's and Eilberg's accounts in the House were recently subpoeaned by a federal grand jury in Philadelphia.

A separate inquiry into the circumstances of the federal funding was conducted in February by the Community Services Administration, which Congress assigned to dole out the Hahnemann money. A nine-page report compiled by CSA general counsel Frank N. Jones singled out a number of irregularities in the course of the still-uncompleted project, including the allegedly improper expenditure of $472,400 in federal money:

Released under the Freedom of Information Act, the report also stated that CSA, as the government's antipoverty agency, had been reluctant at the very outset to spend the unsought appropriation.

As a consequence, the memo stated, in June 1975, CSA originated and, with the help of an official at the White House Office of Management and Budget, arranged a deferral of the money to take effect on June 24, 1975.

Under the Impoundment Control Act, however such intended deferrals must be communicated to Congress; either chamber can overturn them and direct that the money be spent.

For the Hahnemann project. President Ford signed a message stating that the $14.5 million was being held up to determine "want legal authority" CSA had for hospital construction activity and to explore "the availability of other federal funds . . . which are the customary source of funding for such projects."

Citing John Seal, the OMB official who worked with CSA in arranging the deferral, the report then said that "Congressman Flood's office and Flood himself brought pressure on the White House" to reverse itself before the message ever got to Capitol Hill. The deferral was then "canceled at OMB and OMB made the money available" to CSA on July 24, 1975.

Ford's message went to Congress the next day with a notation that it was just a formality since the funds had actually been released the day before.

The CSA report quoted Seal as stating that world of the turnabout "came from someone" higher-up. When asked whether Flood's administrative assistant, Stephen Elko, who has been convicted of bribery in another matter, had pressured him, the report related, "Seal merely responded that there was pressure from Flood's office and the White House."

Seal told The Washington Post yesterday that the CSA report was an "overstatement" of what he told a CSA lawyer.

"I do remember hearing that Flood had contacted the White House at the time, but I don't remember that having been given as the reason for releasing the deferral," Seal stated. But he said he couldn't remember who told him about the pressure and he couldn't recall who told him to release the $14.5 million.

"We had to have gotten phone clearance from OSA, but I don't recall any specific conversation," he said.

Other OMB officials, including two lawyers who have been questioned by the FBI, said they had no written records of any kind indicating that the legality of the Hahnemann grant had been settled.

"Written opinions are not required [on matters such as this]," declared OMB spokesman Whitney Shoemaker. "This was no big deal."